Fort Bonifacio Development Corp. v. Commissioner of Internal Revenue

ELEVENTH DIVISION [CA-G.R. SP No. 61516. April 22, 2003.] FORT BONIFACIO DEVELOPMENT CORPORATION , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE and REVENUE DISTRICT OFFICER, REVENUE DISTRICT NO. 44, TAGUIG AND PATEROS, BUREAU OF INTERNAL REVENUE , respondents . D E C I S I O N REYES, B. , J p : A review of the decision rendered by the Court of Tax Appeals dated October 13, 2000 denying the petitioner's application for refund or issuance of a tax credit certificate in the amount of P486,355,846.78, with legal interest, allegedly representing value-added taxes (VAT) erroneously paid by it for the second quarter of 1997. CIHTac The relevant facts are summed up as follows: Sometime in February 1995, the National Government, by virtue of Republic Act No. 7227 and Executive Order No. 40, sold to herein petitioner Fort Bonifacio Development Corporation several parcels of land which used to be part of the Fort Bonifacio reservation in Taguig. After developing the said property (now known as the Fort Bonifacio Global City), petitioner FBDC started selling the same to the public. At the time that the petitioner acquired a portion of Fort Bonifacio, the value-added tax was not yet imposed on the sale of real properties. However, R.A. No. 7716 was enacted, amending Section 100 of the old National Internal Revenue Code (NIRC) by including "real properties" in the definition of the term "goods or properties". As a result of the said amendment, the sale, barter or exchange of "real properties" held primarily for sale to customers or held for lease in the ordinary course of trade or business was made subject to value-added tax starting January 1, 1996. Consequently, the sale of parcels of land that petitioner acquired from the National Government became subject to a value-added tax of 10%, which burden was not imposed at the time of the acquisition of the lots. Pursuant to R.A. 7716, petitioner registered itself as a VAT taxpayer. Forthwith, petitioner submitted to the Bureau of Internal Revenue an inventory listing of real properties owned by it with a total book value of P71,227,503,200.00. During the second quarter of 1997, petitioner derived an income totaling P5,014,755,287.40 from its sales and lease of lots. The output VAT payable to the BIR on this sum was P501,475,528.74. To pay said amount, petitioner made cash payments totaling P486,355,846.78 and utilized its regular input tax credit of P15,119,681.96 on its purchases of goods and services for the quarter. On February 11, 1999, petitioner filed with the BIR an application for the refund of the output VAT cash payments in the amount of P486,335,846.78. Petitioner anchored its claim on Section 105 of the National Internal Revenue Code, as amended by E.O. No. 273 which grants to any person subject to VAT input tax credits on his beginning inventory of goods, materials and supplies. As there was no action by respondent BIR on petitioner's claim and the two-year prescriptive period provided under Section 230 of the Tax Code was about to expire, the petitioner lodged a petition before the Court of Tax Appeals on May 21, 1999. Petitioner submits that it is entitled to an input tax credit of 8% of the book value of its inventory of real properties pursuant to Sec. 105 of the NIRC, in relation to Sec. 100 of the same Code. According to petitioner, under the aforestated sections, it is entitled to an input tax credit on the beginning inventory of its real properties, meaning, on the raw land it previously purchased from the government. The petitioner contends that the sum ought to be refunded is equivalent to 8% of the value of such real properties, or the total amount of P5,698,200,256.00. And since the amount of value-added tax paid by petitioner for the last quarter of 1997 is P486,355,846.78, this is more than enough to be offset by the total amount of input tax credit of P5,698,200,256.00 after deducting therefrom the amounts of P269,340,469.45 and P359,652,009.47 which are the subject of petitioner's earlier claims for refund of October 8, 1998 and November 17, 1998. Petitioner also assails as invalid and ineffective Revenue Regulations No. 7-95 insofar as it limits the input tax credit to 8% of the value of the "improvements". It pointed out that Section 105 of the Tax Code, as amended, explicitly provides that the input tax credit shall be equivalent to 8% of the value of the "beginning inventory of goods, materials and supplies"; that the respondents are without authority to extend the statute beyond its terms or to limit the scope of the statute to less than what it provides; and that per BIR regulations, the repeated use of the word "presumptive" strongly indicates that the input tax is imputed without necessarily having been paid, hence, it is presumed to have been paid on goods or properties which were heretofore not subject to VAT. Respondents, in opposing the foregoing assertions of the petitioner, averred in their answer that under Revenue Regulations No. 7-95, implementing Section 105 of the Tax Code as amended by E.O. 273, the basis of the presumptive input tax, in the case of real estate dealers, is the improvements, such as buildings, roads, drainage systems and other similar structures, constructed on or after January 1, 1998. Also, petitioner, by submitting its inventory listing of real properties only on September 19, 1996, failed to comply with the aforesaid revenue regulations mandating that for purposes of availing the presumptive input tax credits under its Transitory Provisions, "an inventory as of December 31, 1995 of such goods or properties and improvements showing the quantity, description and amount should be filed with the RDO not later than January 31, 1996." The Secretary of Finance per recommendation of the Commissioner of Internal Revenue, in faithful compliance with Section 19 of R.A. No. 7716 and Section 245 (now Section 244 of the Tax Code, had promulgated implementing revenue regulations for the effective enforcement thereof. Respondents assert that administrative regulations have the force and effect of law. Respondents further maintain that while there is no question that petitioner is a real estate dealer, still it is not entitled to a transitional input tax credit on the raw land which it purchased from the Philippine Government prior to the effectivity of the Expanded VAT Law. This is because of the VAT free acquisition of the raw land. As intimated by the respondents, petitioner purchased and acquired, from the government, the aforesaid raw land under a VAT-free sale transaction. The government, as a vendor was tax-exempt and accordingly did not pass on any VAT or sales tax as part of the price and paid therefore by the petitioner. Respondents also explained that petitioner as a real estate dealer was exempt from sales tax or any form of percentage tax under the old Tax Code. What it paid was only the old real estate dealers fixed tax. Hence, it should not be entitled to any transitional input tax. In support thereof, respondents cited Section 17 of Revenue Regulations No. 5-87 which implemented the first VAT law under Executive Order No. 273 effective January 1, 1988 where business subject to VAT as of January 1, 1998 were not accorded the benefit of any transitory input tax credit on their beginning inventory of land brought into the VAT regime on even date, notwithstanding that the same were used in the business or trade of the taxpayer. The Court of Tax Appeals, in a decision dated Oct. 13, 2000, denied the petitioner's application for refund. The decretal text of the challenged ruling reads: "WHEREFORE, in view of the foregoing, the instant claim for refund is hereby DENIED for lack of merit. SO ORDERED." ( Rollo , p. 154). Hence, the present recourse. Straightway, this Court is confronted with one focal issue: Is the petitioner FBDC entitled to refund or tax credit in the amount of P486,355,846.78? Before attempting to resolve the controversy, it is imperative that We first acquaint Ourselves with the nature and history of the transitional input tax. The transitional input tax was interspersed into our tax system through the original VAT Law of 1988 (Executive Order No. 273) which amended Sec. 105 of the old Tax Code, to wit: "Sec. 105. Transitional input tax credits. A person who becomes liable to value-added tax or any person who elects to be a VAT-registered person shall, subject to the filing of an inventory as prescribed by regulations, be allowed input tax on his beginning inventory of goods, materials and supplies equivalent to 8% of the value of such inventory or the actual value-added tax paid on such goods, materials and supplies, whichever is higher, which shall be credited against the output tax." The original VAT Law was later on amplified by Republic Act 7716, otherwise known as the Expanded Value Added Tax Law. As a consequence of such amendment, the term "sale of goods" was stretched to include sale of real properties. As modified, Section 100 thus states: "Sec. 100. Value-added tax on sale of goods or properties. (a) Rate and base of tax. There shall be levied, assessed and collected on every sale, barter or exchange of goods and properties, a value-added tax equivalent to 10% of the gross selling price or gross value in money of the goods or properties sold, bartered or exchanged, such tax to be paid by the seller or transferor: (1) The term "goods" or "properties" shall mean all tangible and intangible objects which are capable of pecuniary estimation and shall include: (a) Real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business; xxx xxx xxx." Resultantly, the petitioner, a real estate dealer, was brought into the operation of the VAT system for the first time. Now, it vigorously claims entitlement to transitional input tax credits in view of the two aforequoted provisos. Apparently, the petitioner harps on the mistaken premise that the law grants the benefit of transitional input tax credit to all real estate dealers whether or not their beginning inventories were previously subjected to business taxes (either sales tax or VAT). At this juncture, it is worth mentioning that as a real estate dealer, petitioner FBDC was not subjected to any form of sales tax under the Old Tax Code. What it used to pay was only a real estate dealers fixed tax. What is more crucial is that the petitioner acquired the contested property from the National Government under a VAT-free transaction. The Government, as a vendor was outside the operation of the VAT and ergo, could not possibly have passed on any VAT or sales tax as part of the purchase price to the petitioner as vendee. As aptly pointed out by the tax court in the assailed decision, the transition or passage from the sales tax system to the value-added tax system left many manufacturers, producers and importers with inventories consisting of goods upon which sales taxes were already paid or passed on as part of the invoice price or acquisition cost. To be able to utilize the sales taxes, the VAT law of 1988 included a provision granting these taxpayers the benefit of transitional input tax credit from which they could offset their VAT liability under the present system. The most reasonable inference We could draw from this is that the grant of transitional input tax credit indeed presupposes that the manufacturers, producers and importers should have previously paid sales taxes on their inventories. They were given the benefit of transitional input tax credits, precisely, to make up for the previously paid sales taxes which were now abolished by the VAT Law. It bears stressing that the VAT Law took the place of privilege taxes, percentage taxes and sales taxes on original or subsequent sale of articles. These taxes were substituted by the VAT at the constant rate of 0% or 10% ( Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan, 163 SCRA 371 ). As enunciated by the tax court in a parallel case involving the same petitioner, "the benefit of transitional input tax credit comes with the condition that business taxes should have been paid first and that said taxes may be used to pay their output tax liability through the transitional input tax credit provided by section 105" ( Fort Bonifacio Development Corporation Corp. vs. CIR, CTA G.R. No. 5735, October 12, 2000 ). No tax of such kind was paid by the petitioner on its purchase of raw land from the government. Common sense prods Us to decline the petitioner's argument, lest We occasion inequitable and unreasonable consequences. Such absurdity, quite surely, is far from the intendment of the lawmakers in granting the transitional input tax credits. The law, after all, contemplates only that which is reasonable Lex semper intendit quod convenit rationi . Parenthetically, We are being urged by the petitioner to strike down as invalid Sec. 4.105-1 of BIR Revenue Regulation No. 7-95 for having based the transitional input tax credit solely on the value of the improvements, excluding the value of the raw land. This Court is not swayed. Said the Court of Tax Appeals in another case for refund involving the same petitioner: "Corollary to our findings that petitioner was wrong in basing its transitional input tax credit on the book value of its real properties, it is our firm conclusion that respondent was correct in basing the 8% transitional input tax credit on the value of the improvements on the land such as buildings, roads, drainage systems and similar structures constructed on or after the effectivity of Executive Order 273, pursuant to the wordings of section 4.105-1 of Revenue Regulations No. 7-95 ( supra ). Such basis is consistent with the purpose of the transitional input tax credit because when a real estate dealer puts up improvements on the real properties as those enumerated in Revenue Regulation No. 7-95, VAT is necessarily passed on to them either as part of the acquisition cost of the materials used in building the improvements or as part of the cost of the services rendered in building the same. So in the event those lots with improvements are sold by the dealers upon the effectivity of the E-VAT law or thereafter, the VAT passed on to them can be utilized to pay their output VAT liabilities. It is wrong therefore for the Petitioner to state that section 4.105-1 of Revenue Regulations No. 7-95 is contrary to law, rather we find it to be consistent and in harmony with the law it seeks to implement ( Fort Bonifacio Development Corporation vs. Commissioner of Internal Revenue, et al., CTA Case No. 5665 promulgated on August 11, 2000 )." Moreso, there lies ostensible merit in the position that Revenue Regulations No. 7-95 is a valid implementation of the NIRC. The respondent, in its Comment, espoused the legitimacy of the above-referred Revenue Regulation by expounding on the nature of the Philippine VAT Law. aTADCE "Section 4.105-1 of Revenue Regulations No. 7-95, implementing Section 105 of the Code in respect of transitory input tax credits, is not contrary to any law nor the Constitution. On the contrary, it is consistent with the Canon of the Value Added Tax System, which is of international application, that transitory input tax credit shall only be recognized and showed provided the inventory of goods or properties brought into the transition from non-VAT to VAT regime have previously been purchased subject to the VAT or to any form of sales tax which accordingly had been passed on as a part of the buyer's invoiced price or acquisition cost. Conversely, where no VAT or any form of sales tax which accordingly had been passed on as part of the buyer's invoiced price or acquisition cost of the inventory, no transitory input tax credit shall be recognized or allowed when the same is brought into the VAT regime, during the transition of the business from non-VAT to VAT, is to prevent the cascading of the VAT or sales tax in the subsequent turnover of inventories, in order to avoid imposition of a tax against tax or VAT against VAT and thus prevent double taxation of the inventory, since the VAT is only intended as a tax on the value added on every turnover of the inventory until it reaches the ultimate consumer against whom the full burden or cost of the tax is indirectly passed on as a part of his acquisition cost. The Philippine VAT law, particularly in connection with the transitory input tax credit, adheres to the aforesaid internationally accepted practice that transitory input tax credit shall only be allowed provided any form of business tax had been paid and passed-on as part of the invoice price or acquisition cost of the inventory and such inventory is brought into the VAT regime by its owner. Thus, if no such tax forms part of the inventory cost, no transitory input tax credit shall be allowed when the same is brought into the VAT regime as the taxpayer's transitory beginning inventory." FBDC's submission that Section 105 of NIRC, in relation to Section 100 thereof, is impeccably and clearly couched that it disposes of the need for interpretation is not well taken. We cannot cavil at the fact that taxation is a painfully variegated and extremely technical branch of the law that administrative instrumentalities often need to intervene in order to decipher and cast light upon hazy provisions which perplex, unsurprisingly, even the initiated. In this regard, let it be said that construction given to a statute by entities charged with the interpretation and application of the same is entitled to great respect and should be accorded great weight by the courts, unless such construction is clearly shown to be in sharp conflict with the governing statute or the Constitution or other laws (Nestle Phils. vs. CA, 203 SCRA 504) . A contemporaneous construction and interpretation of a law by the implementing administrative agency is accorded great respect by the Court (Bagatsing vs. Committee on Privatization, Philippine National Oil Co., 246 SCRA 337) . We should perhaps stress that claims for refund partake of the nature of claims for tax exemption (CIR vs. Tokyo Shipping Co., Ltd., 244 SCRA 332) and as such, they are to be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing power (Light Rail Transit Authority vs. Central Board of Assessment Appeals, 342 SCRA 692) . So must be the rule because such actions are regarded as a derogation of sovereign authority. The burden of proof is upon him who claims the exemption in his favor and he must be able to justify his claim by the clearest grant of organic law or statute it cannot be permitted to exist upon vague implications. (Asiatic Petroleum Co. vs. Llanes, 49 Phil. 466; Asturia Sugar Central, Inc. vs. Commissioner of Customs, 29 SCRA 617) . Thus, whenever a taxpayer seeks exemption, an indubitable showing that such exemption exists is imperative, for every presumption is against it, and a well founded doubt is fatal to the claim (Manila Electric Co. vs. Verna, L-29987, Oct. 22, 1975) . Lastly, as jurisprudence has consistently taught Us, conclusions reached by the Court of Tax Appeals are not to be lightly set aside since by the very nature of its function, said tribunal is dedicated exclusively to the consideration of tax problems and has necessarily developed an expertise on the subject (Cyanamid Philippines, Inc. vs. Court of Appeals, 322 SCRA 639) . Indeed, the Court of Tax Appeals is a highly specialized body specifically created for the purpose of receiving tax cases and, through its expertise, it is undeniably competent to determine specific issues through the evidence presented before it (Philippine Refining Company vs. Court of Appeals, 256 SCRA 667) . WHEREFORE, in the light of the discussions that prescind, the instant petition is hereby DISMISSED. DaEATc SO ORDERED. Valdez, Jr . and Pine, JJ . , concur.